Free CMA Exam Braindumps (page: 3)

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The capital budget is a(n)

  1. Plan to ensure that sufficient funds are available for the operating needs of the company
  2. Exercise that sets the long-range goals of the company including the consideration of external influences
  3. Plan that coordinates and communicates a company's plan for the coming year to all departments and divisions
  4. Plan that assesses the long-term needs of the company for pant and equipment purchases

Answer(s): D

Explanation:

Capital budgeting is the process of planning expenditures for long-lived assets. It involves choosing among investment proposals using a ranking procedure. Evaluations are based on various measures involving rate of return on investment.



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Capital budgeting techniques are least likely to be used in evaluating the

  1. Acquisition of new aircraft by a cargo company
  2. Design and implementation of a major advertising program
  3. Adoption of a new method of allocating non-traceable costs to produce lines
  4. Sale by a conglomerate of a n unprofitable division

Answer(s): C

Explanation:

Capital budgeting is the process of planning expenditures for investments that are expected to generate returns over a period of more than one year. Thus, capital budgeting concerns the acquisition or disposal of long-term assets and the financing ramifications of such decisions. The adoption of a new method of allocating non-traceable costs to product lines has no effect on a company's cash flows, does not relate to the acquisition of long- term assets, and is not concerned with financing. Hence, capital budgeting is irrelevant to such a decision.



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The capital budgeting model that is ordinarily considered the best model for long-range decision making is the

  1. Payback model
  2. Accounting rate of return model
  3. Unadjusted rate of return model
  4. Discounted cash flow model

Answer(s): D

Explanation:

The capital budgeting methods that are generally considered the best for long-range decision making are the internal rate of return and net present value methods. These are both discounted cash flow methods



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Effective cost capacity management

  1. Minimizes the value delivered to customers
  2. Maximizes required future investments
  3. Matches the firm's resources with current and future market opportunities
  4. Is limited to eliminating short-term worth

Answer(s): C

Explanation:

According to SMA 4Y, Measuring the Cost of Capacity, maximizing the value created within an organization starts with understanding the nature and capabilities of all of the company's resources. Capacity is defined from several different perspectives. Managing capacity cost starts when a product is first envisioned. It continues through the subsequent disposal of resources downstream. Effective capacity cost management requires supporting effective matching of a firm's resource with current and future market opportunities.



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